Under Armour sets global ambitions

AndriaCheng

NEW YORK (MarketWatch) — Superheros from Batman to Iron Man came to the side of Under Armour Inc. in its bid to become a dominant global athletic gear player.

On Friday the company
UA, +0.36%
reported a 23% increase in first-quarter sales to $472 million, the 12th straight quarter where revenue has seen at least a 20% gain. Demand was helped in part by the new Alter Ego line, including the Batman and other superhero shirts.

Investors had bid up shares for most of the morning, even as profit slumped 47% because of the higher market expenses to roll out its biggest brand marketing campaign, “I will.” Shares edged up 0.3% in recent trading.

Under Armour

Alter Ego collection

The company’s shares have more than quadrupled since its IPO in November 2005, outpacing the performance of larger rivals Nike Inc.
NKE, +0.49%
and Adidas AG
ADS, -0.95%
during the same period.

Under Armour’s market share also has increased in each of the past three years. So far this year, its share of U.S. athletic shoe market in the U.S. rose to almost 2% from 1.3% a year earlier, SportsOneSource data showed. Its apparel share grew to 13.65% of U.S. market from 11.07%.

“A lot of Under Armour’s major retail partners are keeping their foot on the gas pedal to accelerate their growth of the brand,” said Sterne Agee analyst Sam Poser in an interview, adding the stock is one of his top picks. “While Nike is doing a very good job, so is Under Armour. Retailers want to find the strong alternative to go to. Adidas has been inconsistent. Under Armour keeps coming up with the new products and interesting ideas.”

From its start in 1996 as a maker of synthetic-material compression shirts founded by its Chief Executive Kevin Plank, a former University of Maryland football player, the company’s apparel sales last quarter surged 22% to $346 million.

The segment, almost three quarters of total sales, marked its 14th straight quarter of 20% plus gain. The Alter Ego line, unveiled in March, was one contributor.

The line “was the most successful product launched ever on our e-commerce site and we just started shipping it late in the quarter to our wholesale account,” Plank said on a conference call. It keeps “keep us at the forefront of our consumers’ mind and helps to create traffic in our partner stores.” A company spokeswoman said the line is its fastest selling on its website.

That is only one example of Under Armour’s growth strategy. Plank has diversified the company’s product categories to footwear including football cleats and running sneakers. On the apparel front it’s increased its focus on women and made them more fashionable. The company also has added cotton shirts and fleece. Compression product last year represented only 14% of its total sales.

Footwear sales in the quarter jumped 27% to $81 million, or 17% of sales, helped by its lightweight Spine Venom running sneakers. Meanwhile, its Highlight football cleats are featuring 32 colors to generate demand.

To be sure Under Armour has a long way to go before it becomes a formidable rival to Nike. Its 2% footwear market share pales against Nike’s more than 60% market share, SportsOneSource data showed. Nike has a 24% share of the U.S. sport apparel market.

Online and company’s outlet and specialty store sales grew 31% to represent 26% of total business. Outlets also have been a growth contributor as its U.S. outlet store count rose 21% to 102 from 84 a year earlier, with the company planning to add 10 more this year.

To further its ambition to be a global athletic brand, the company in February opened UA Brand House in its hometown of Baltimore to feature its widest assortment of products to raise awareness for its women’s and shoe offerings.

It’s also signed on to be the official supplier for the U.S. women’s and men’s gymnastics teams this year as it seeks to promote its brand to a global audience at the next two Summer Olympic Games. Plank, who said he just returned from a five-city tour over six days in Asia, also has installed a new international leadership team, including executives in Europe and in emerging markets such as China and Brazil.

“We are establishing that pathway for growth internationally,” he said. We are “truly embracing being a global company.”

International sales surged 41% to $31 million in the most recent quarter to just over 6% of total, led by growth in Latin America.

“They still have room to grow,” SportsOneSource’s Matt Powell told MarketWatch. However, he said the company has “a long way to go” to match up to Nike’s level, adding a big part of the past two years’ growth came from outlet store openings, growth of which he said is slowing.

On the international front, he said Under Armour will have a tough fight as it’s not known as a brand for soccer, the predominant global sport.

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